French Parliament Approves The Reduction of Corporate Income Tax Rate

; posted on
July 16th, 2019

The French parliament approved legislation shifting the trajectory of the reduction in the corporate income tax rate that already enacted in the 2018 finance law.

Corporate income tax measures

The Finance Law for 2018 provides for a further progressive reduction of the corporate income tax rate to 25%, fully applicable for financial years opened in 2022. The schedule for phased-in application of the progressive reduction will be as follows:

  1. For tax years beginning on or after 1 January 2018, the standard CIT rate for all companies is 28% on taxable income up to EUR 500,000, and 33.33% on taxable income exceeding that amount.
  2. For tax years beginning on or after 1 January 2019, the standard CIT rate for all companies will be 28% on taxable income up to EUR 500,000, and 31% on taxable income exceeding that amount.
  3. For tax years beginning on or after 1 January 2020, the standard CIT rate for all companies will be 28%.
  4. For tax years beginning on or after 1 January 2021, the standard CIT rate for all companies will be 26.5%.
  5. For tax years beginning on or after 1 January 2022, the standard CIT rate for all companies will be 25%.

A resident company is subject to CIT in France on its French-source income. In that respect, income attributable to foreign business activity (if there is no treaty in force between France and the relevant foreign country) or to a foreign PE (if a tax treaty applies) is excluded from the French tax basis.

A non-resident company is subject to CIT in France on income attributable to French business activity or to a French PE, as well as on income from real estate located in France.

Corporate income tax rate reduction trajectory shifted by new legislation

According to the new legislation, the standard tax rate for 2019 will remain at 33.33%, except for companies with a turnover lower than EUR 250 million (to be assessed at the tax group level, if applicable), to which a 31% rate will apply. The 28% rate, as enacted in the 2018 finance law, still will apply to the first EUR 500,000 of taxable income. Thus, the measures laid out in the finance law was not fully approved by the parliament since the reduction trajectory is shifted

Action before the French Constitutional Court is expected as members of parliament may challenge the constitutionality of the legislative text.

Source: The French Parliament

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